Same thing as if everyone stopped paying any type of loans. A shock to the banking system, potentially a collapse if the debt in question is a significant percentage of all debt. Many people would lose their savings.
And no don’t hope that bank owners would absorb the debt, they would just liquidate the bank in a bankruptcy wiping out everyone’s deposits.Edit: In most countries there’s also a deposit insurance scheme meant to cover cases of bank failure. But it can cover one or two banks failing, not all of them at once.
Many people would lose their savings.
In Germany, everyone is protected up to 100,000 €. So it would actually be a nice reset button where only the rich would “suffer”
Yeah except it’s backed up by the government. So if it all comes due with the exact same time the people are still paying that money either way.
Deposit guarantee schemes (DGS) reimburse up to a certain amount to compensate depositors whose bank has failed. A fundamental principle underlying DGS is that they are funded entirely by banks, and that no taxpayer funds are used.
It works by having a central fund to back the money that qualifies for the deposit guarantee, however said funds only contains 0,8% of covered deposits. Although this might seem small, this is still a large amount of capital (~40 billion euro), and should be able to cover all deposits during a major financial crisis (like 2008) according to this research (ECB funded).
Similar with the US FDIC:
The FDIC is primarily funded through assessments, which are insurance premiums paid by FDIC-insured institutions. These assessments are based on the balance of insured deposits and the risk posed by each bank. Additionally, the FDIC’s Deposit Insurance Fund is invested in U.S. Treasury securities, earning interest that supplements the premiums paid by banks.
I didn’t understand your second sentence, can you clarify that a bit?
Well who is the government? Where do they get their money? It’s it’s us it’s the people. If the nation suddenly owes trillions of dollars to all its people nobody’s getting any money. Best case scenario they just say fuck it nobody’s getting anything. Worst case scenario the country literally collapses.
I thought it was some kind of written guarantee that the banks would only invest/divest the money over the 100k threshold, where if the bank collapses there’d still be the fallback of the money it didn’t invest, and as I’m typing this I instantly know it’s not true and that banks play it all fast and loose and hope that no one finds out…
I see your point.
Banks do have strict risk requirements (i.e. Basel III), in terms of what they are allowed to do with money, and are stress-tested on a regular basis. However, the type of scenario OP is posing would mean every bank would need to write-off their loans, and hope they have capital invested in other places to keep them afloat.
Since banks have these capital at risk requirements, the government feels comfortable to guarantee accounts up to a certain amount, as every bank going down at the same time is generally speaking a very unlikely event. So usually they would cover the account, take over the bank (if needed), put it into administration, and wind-down positions to claw back money to cover the insurance claims.
Ah I see, thanks for the extra context!
… and with the help of inflation hack
That only applies to cash. The rich have the greater majority of their wealth in assets, so they likely won’t even give a second thought to losing all of their cash. Who it’s actually going to hurt are the middle class workers nearing retirement. The ones who make enough to have some semblance of a retirement fund and who have also moved this fund to cash to reduce volatility.
So it would actually be a nice reset button where only the rich would “suffer”
It would be nice but there’s always a way…
Remember in the late 2000s when it was discovered they were literally breaking a slew of lending regulations, giving mortgages to people unqualified for them, etc. etc. you can lookup the details but basically they were raping the country’s banks, and then when they were found out, they retired with multimillion dollar retirement packages plus bonuses. And the banks got the federal government to bail them out.
Biggest fucking grift in history and it was not long after the auto industry did the same fucking thing. Again and again this shit happens.
So don’t be under any delusion we could cause any kind of actual consequences to the ultra rich because they’ll just line us up and take the shirts off our backs before they pay a dime.
Afaik they weren’t breaking any regulations at the time, we made the regulations in response to what happened. But several of them were lying about their losses, which was illegal.
Police enforcement. Like when the national guard was sent to break unions.
Not much. You can’t spend enough of their money before they stop your spending and start collecting it.
How much credit can you get without a high income or a lot of assets? Hopefully much smaller than your mortgage (which is that the 2008 crisis was about).
Exactly what happens depends on law where you live. Here you’d get a court order: First confiscation of cash or cash equivalents. Second sale of assets, in the end your pay would be garnished. Since not everyone is forced to sell their house (like 2008) the price drop would be smaller but spread across the entire economy.
Unless you’re willing to illegally work without a contract and only take cash payments they will get their money back.
Anyone who did not participate in it would have a good time buying cheap stuff in the forced sale.
wage garnishment mostly
Companies like Visa and similar would go out of business with no customers. The government might intervene with bailouts to stop banks from going down. Online shops would start accepting bank transfers (or Venmo in 'Murica) more universally. Crypto would have another hype cycle.
I don’t really buy that it would implode the economy, since it runs on all kinds of more tangible things and there’s other forms of currency and debt to fall back on, and I also don’t buy that the government would seriously enforce against a strike if it had 100% participation - usually just a few percent is election-defining. At most I expect whining and a maybe a few impotent attempts to discourage it before they get the picture.
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Believe it or not, straight to jail.
Hugh government bail out (American here). Taxpayer gets stuck with the bill. Companies loose nothing (probably make even more than way).
FDIC would get the test of its lifetime, but for sure the government would step in to protect the market. Some level of that would come from taxpayers’ pockets.
Pretty sure FDIC (Federal Deposit Insurance Corporation) is for deposits only, not debts. The politicians would never let their donors suffer.
True, I was mainly responding to folks talking about banks going under and people “losing everything.” The FDIC was specifically set up to avoid that happening again.
They would all get late fees.
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Millions of people have credit card debt, sooo…
There aren’t debtors prisons to begin with. You don’t go to jail for owing on credit card bills.
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Not even remotely close to being locked inside a box.
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You get rid of thatcher. Seems like a good idea
The financial system would collapse, leading to unimaginable suffering until it is rebuilt again. Tens of millions of deaths in a few years in USA alone.
Really went off the rails in that second sentence
